Procedural restructuring a highlight of newest version of enterprise law

Vaibhav Saxena from Vietnam International Law Firm

The new Law on Enterprises (LOE) is expected to take effect next year with a number of positive changes in rights and responsibilities.

For example, if there is more than one legal representative at a company, and if the charter does not specify the rights and obligations of each legal representative, any of them can be the fully authorised representative and all of them will jointly be responsible for any damages incurred by the company.

There are also changes to enterprise registration and admin procedures. Besides minutes of annual general meetings, the new LOE further requires companies to keep records of votes and minutes of vote-counting in the company’s custody.

The new LOE abolishes the requirement of reporting changes of the information of an enterprise’s managers. Currently, the licensing authority must be notified of changes to such personal details within five days.

The law also allows the application dossier for enterprise registration to be submitted directly at the licensing authority, by post, or online via the National Business Registration Portal.

The upcoming legislation confirms that both online and offline registrations have the same legal validity. It is understood that those who use the online registration method do not need to subsequently submit a paper application for enterprise registration to the business registration authority.

Instead of specifically requiring capital contribution/transfer/repatriation to be conducted via a capital bank account, the new LOE removes this regulation and generally refers to the laws on foreign exchange control.

The new LOE also abolishes the requirement of registering seal specimens before using them. It recognises registered e-signatures under e-transactions regulations as a type of company seal. It also clarifies that representative offices of enterprises are not allowed to conduct any business.

New rules require members’/shareholders’ register of a company to be updated with any change on a more timely basis. Other than when founding members/shareholders establishing a company (where the time limit of 90 days for capital contribution is applicable), a person is considered a member/shareholder of a company not only when he/she completes a capital contribution but also when his/her name is recorded in the members’/shareholders’ register of the company.

Along with the aforementioned procedure changes, there are other areas to look at.

Time limit for injecting charter capital

The updated LOE maintains the time limit for injecting charter capital at 90 days from the date of the issuance of enterprise registration certificates (for both limited liability companies and joint-stock companies) but provides certain exceptions for this time limit. This change is an attempt to resolve the current difficulties of contributions for land use rights by Vietnamese members/shareholders, which is time consuming, and are unlikely to be met by the 90-days limit in practice.

Bond private placements by non-public companies

The new LOE provides more conditions for private placements of bonds by limited liability companies (LLCs) and joint-stock companies (JSCs). A company can offer only convertible bonds and bonds with warranties to strategic investors, but can offer these bonds and other classes of bonds to professional securities investors.

LLC management structure

The requirement of having the board of inspection/controllers applicable to LLCs that are not owned by the state has been removed. This change allows LLCs to simplify their management structures.

The legal representative of an LLC must at least hold the position of either chairman or [general] director of the company. If the charter does not specify clearly, the company chairman will be the legal representative.

The new LOE clarifies that the individual owner of a single-member LLC is the chairman of the company.

JSC management structure

For the first time, the concept is introduced of non-voting depository receipt (NVDR), which clearly identifies the owners to have full economic benefits corresponding to the number of shares deposited to issue NVDR, but exclude (without) voting rights. The government will provide further guiding regulations.

The new LOE allows a shareholder or a group of shareholders holding 5 per cent or more (or a smaller percentage as stipulated in the company’s charter) of the total ordinary shares to have the right, inter alia, to request the convening of a general meeting of shareholders (GMS) in certain cases or to request the board of inspection/controllers to investigate certain matters relating to the operation of the company.

A shareholder or a group of shareholders holding 10 per cent of voting rights or more can now nominate candidates for the management board or the board of inspection/controllers.

In addition, the new LOE removes the requirement that a shareholder must hold shares for at least six months to exercise his/her above rights. This is a welcome change since the new owner of a JSC can take control of the company as soon as it acquires the respective shares.

The new LOE clearly requires that prior to the issuance of shares under a private placement plan, the company must offer the newly-issued shares to the existing shareholders in proportion to their shareholding ratio. The existing shareholders may transfer their pre-emptive rights to subscribe for new shares to a third party. Only residual shares not subscribed by existing shareholders can be sold to the designated investor approved by the GMS under terms and conditions that are not more favourable than those offered to the existing shareholders.

The threshold for passing a GMS resolution with respect to non-critical issues is reduced from “at least 51 per cent” to “more than 50 per cent” of the total number of the voting shares of the attending shareholders. This new threshold is also applicable to a written GMS resolution.

More rights for the GMS are added, for example deciding remuneration for board members and controllers; approving internal management and operation regulations; and approving an independent auditing company.

An “independent” member of the management board (where the JSC with more than 11 shareholders operates without a board of inspection/controllers) can be appointed for two consecutive terms only.

Like current regulations, a shareholder or group of shareholders holding 1 per cent can now lodge a petition against the board members or [general] director who breach their duties to compensate the company.

The GMS or the management board must approve certain transactions between the company and the related persons/entities of its shareholders. The new LOE adds a new requirement that those transactions which have value of more than 10 per cent of the company’s total assets stated in the latest financial statement of the company between the company and shareholders holding from 51 per cent of total voting shares or their related persons/entities must now be approved by the GMS.

Transactions with related persons/entities without proper approval from the GMS or the management board shall be deemed invalid by a court.

Enterprise restructuring

The new LOE removes the list of circumstances/methods of company restructuring. This provides flexibility to companies in dividing and separating enterprises according to the enterprises’ decisions instead of limiting them to the current specific methods.

With respect to liquidation procedures, the current law requires the liquidation decision/resolution to be signed by the legal representative of the company. The new one specifies that this decision must be signed either by the company owner or a chairman.

Moreover, the liquidation decision/resolution is not required to be declared in the timeline for paying debts and liquidating contracts, which must be within six months.

In practice, this timeline is rarely met and a liquidated company has to issue a new decision to adjust it. This is a positive change in line with current practice.

The new LOE allows private enterprises to be converted directly into JSCs. Currently, private enterprises must first be converted into LLCs before being converted again into JSCs.

Definition of state-owned enterprises

Under the new legislation, a state-owned enterprise (SOE) is a company with 50 per cent or more of its charter capital or voting shares owned by the state, rather than 100 per cent as currently stipulated in the 2014 equivalent.

The new LOE returns to the definition of SOEs stipulated in the 2005 law. As a result, the term “state-owned enterprise” in the relevant laws will be now read as “enterprises wholly owned by the state”.